The national credit rating agency downgraded the credit rating of Grand Limited by two levels from BB to
B+. The credit rating agency was concerned about the company’s ability to refinance portions of its debt. Both BB and
B+ are considered “junk” bonds and are below the BBB- category, which is the lowest grade that many pension and mutual funds are allowed to hold.
Financial statement analysts said the company’s financial profile had weakened due to tight debt covenants and resulting cash flow restrictions.
Instructions
(a) Discuss whether the credit rating agency is a stakeholder from Grand Limited’s perspective.
(b) Discuss any bias that Grand might have when it issues its financial statements.